The CFA Institute has been offering the chartered financial analyst designation for over 70 years since its post-WW2 establishment. Over the second half of the 20th century it spread globally, and is now the most recognized and arguably most prestigious certification in finance, often prized more than an MBA.
That’s a pretty big deal, because the most expensive MBA program costs over $240,000, and pretty much all of the top MBA programs cost well into the six figures. But the entire CFA exam costs just $3,300, a fraction of what the MBA costs.
The biggest reason for that difference in price is that the CFA is simply an exam—you are responsible for studying the content, and that’s no small feat. Not only is the program very comprehensive (five very large books are required for each of the CFA’s three tests), but it requires a significant amount of memorization on various topics and the application of many, many formulas to financial problems that can get extremely esoteric.
The CFA’s difficulty has become notorious, to the point where the CFA level 1 pass rate fell to 27% by the end of 2021, and the pass rate has been declining for many years. In the 1960s, the CFA’s pass rate was in the region of 80%, and now it’s a third of that. The decline has been happening for decades, with some arguing that the CFA has gotten too dense and difficult, with others saying the harder exams mean the designation carries just that much more weight.
In reality, attitudes towards the CFA vary significantly. It is definitely valued in most parts of credit and equity research, where the charter can be used to make a clear signal of competence, especially for job seekers. Passing level 1 or level 2 shows a combination of knowledge, grit, discipline, and the willingness to sacrifice for the job—all extremely compelling qualities for a potential employer. For some shops, a CFA level 1 pass and a degree from a less prestigious school is worth more than no CFA passes at all and an Ivy League degree with honors.
That doesn’t mean CFA charterholders are better investors—there’s no evidence to demonstrate that. Whether the knowledge acquired during the exam taking period really helps performance is debatable, with some charterholders saying it has helped them significantly and others saying it’s more a signal of competence than a provider of competence.
There is no doubt that CFA charterholders make more money. The CFA Institute does significant work on how much its charterholders earn, and the numbers are impressive: the average PM and CFA charterholder earns $177,000, and while there aren’t directly comparable studies of non-charterholders, it is true that the vast majority of shops on Wall Street either do or have in the past offered pay bumps to CFA charterholders. In short, the designation is very likely to help you get a job and get paid more once you get that job.
That doesn’t mean the CFA doesn’t have its detractors. Last year, a Bloomberg op-ed blatantly called the CFA program “a colossal waste of time,” and it’s hard to disagree from a markets perspective, since there’s no data to show CFA charterholders make for better investors. Plus, many argue, a significant amount of the content in the CFA curriculum is either outdated (dividend discount modeling, for instance), easily replicated with computers (calculating the FV of a payment schedule is a snap with Excel or a Google search), or simple wrong (much of the technical analysis in the CFA curriculum is seen as voodoo or just plain nonsense by a significant cohort of financial professionals).
Is the CFA outdated? Possibly—or at the very least, it has changed significantly into something other than what it began to be in the mid-20th century. Is it worth pursuing? If you’re a Harvard grad with an uncle who works at Goldman Sachs, you may not need to waste your weekends on the program. But for the rest of it, it is an extremely powerful signal to HR that, at the very least, your application shouldn’t be immediately thrown in the trash
